This business became a billion-dollar company, basically on the back of Chinese demand for safe, reliable, foreign-produced infant formula. And importantly, much of this was driven though the “daigou” — Chinese shoppers who purchased their product in Australian supermarkets and chemists, then posting or carrying back to their buyers (predominately friends and acquaintances back in China)..
For context, Daigou became extremely popular in China following the 2008 Chinese milk scandal which involved milk and infant formula being adulterated with melamine. China reported an estimated 300,000 victims in total with six babies dying after being fed with unsafe formula. Over the next few years this was followed up with numerous other publicised food scared and basically Chinese consumers lost trust in local brands and local distribution..
Therefore the growing middle class, estimated at over 400 million started spending more money on imported goods which not only gave them confidence but showed their commitment to ‘investing’ in their and their extended families health and wellbeing. Being able to purchase western produced goods such as milk formula from a trusted daigou seller quickly became a default solution for many Chinese parents..
This explains why Bellamy’s grew at 70 per cent annually in the period from 2008-2013, and leading to a public IPO in 2014. It saw its share price rise from a little over a dollar at listing to above $16 by late 2015. But shortly after, hit a major obstacle..
What happened, where did it go wrong? From my view (looking from the outside), it appears the company was overly concerned that too much of its product was making it to China via daigou, a grey-market channel it didn’t control. So rather than try and develop and formalise the D2C channel it moved to marginalise and constrict it. Starting by setting up eCommerce Flagship stores on a number of online platforms in China so that it could sell directly to Chinese customers and then aggressively marketing with these new online partners to capture marketshare. They expected a lot of sales as Ballamy’s sent a number of large shipments to China..
However, this strategy backfired spectacularly, and in reflection should have been obvious. Stock soon accumulated in the warehouses of Bellamy’s new partners, who responded by discounting, thereby undercutting the main daigou sales channel. Soon, daigou buyers started picking other more profitable brands (i.e., Aptamil & A2); before long the landscape had changed and $500 million was wiped off Bellamy’s share price. If it better understood the D2C market, it would have avoided this mess and become one of the most recognised brands in not what to do with D2C..
For more information on working with the daigou community please visit: DaigouSales.